SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
MTS SYSTEMS CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Items 22(a)(2) of Schedule A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
[LOGO] MTS SYSTEMS CORPORATION
14000 Technology Drive
Eden Prairie, MN 55344-2290
Telephone (612) 937-4000
Fax (612) 937-4515
www.mts.com
December 19, 1996
Dear Fellow Shareholder:
I am pleased to provide you with the enclosed proxy statement and proxy card in
conjunction with the annual meeting of MTS Systems Corporation. Also enclosed is
an annual report.
Of particular importance is the 1997 Stock Option Plan. I am writing to explain
why this plan will benefit both employees and shareholders and to request that
you vote FOR ratification of this plan.
Stock options have been an important part of our compensation program for many
years. We believe they allow us to attract and retain talented employees who
enhance the operating performance of our Company. Because we believe that equity
ownership aligns employees' interests very closely with those of shareholders, a
significant part of compensation is in options on MTS Systems common stock.
Approximately 20% of our employees have a portion of their compensation tied to
stock options.
This year, we are asking our shareholders to approve a new stock option plan
authorizing 750,000 stock options which, when combined with residual shares from
prior plans, we project will allow for the granting of stock options to our
employees over the next four years. The details of the proposed plan are on
pages 13-16 of the Proxy Statement and should be read for fuller understanding.
We realize that stock option programs can dilute shareholder returns. We have
been able to minimize dilution in the past through the Company's repurchase of
MTS common stock in the open market when it is within our repurchase range. We
plan to continue that repurchase practice.
As a further effort to minimize dilution, this new plan limits the exercisable
period to 7 years considerably shorter than most plans. Our current practice is
to issue options with a 5 year exercisable period.
The Board believes that the proposal to adopt the 1997 Stock Option Plan is in
the best interests of the Company and its shareholders and unanimously
recommends that the shareholders approve its adoption.
Should you have any questions or comments, please contact Thomas Minneman,
Treasurer and Manager of Investor Relations, at 612-937-4647.
Very truly yours,
MTS SYSTEMS CORPORATION
/s/ Donald M. Sullivan
Donald M. Sullivan
Chairman and Chief Executive Officer
[LOGO] MTS SYSTEMS CORPORATION
14000 Technology Drive
Eden Prairie, MN 55344-2290
Telephone (612) 937-4000
Fax (612) 937-4515
www.mts.com
Dear MTS Shareholder:
On behalf of your Board of Directors, I want to invite you to attend your
Company's Annual Meeting of Shareholders. The Annual Meeting will be held on
Tuesday, January 28, 1997 at 4:00 p.m. at the Company's main office in Eden
Prairie, Minnesota.
We would like all our shareholders to be represented at the Annual Meeting,
in person or by proxy. To that end, our staff works earnestly to follow up on
proxies which are not returned. Last year 91% of the shares were voted and we
thank our shareholders for that response. Please help us by taking the next few
minutes to complete the enclosed proxy and then drop it in the mail even if you
plan to attend the Annual Meeting. Shareholders who attend the Annual Meeting
may revoke their proxies and vote in person if they desire. Your promptness is
much appreciated.
Very truly yours,
/s/ Donald M. Sullivan
Donald M. Sullivan
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
December 19, 1996
MTS SYSTEMS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 28, 1997
The Annual Meeting of Shareholders of MTS Systems Corporation (the
"Company") will be held on January 28, 1997 at the Company's main office which
is located at 14000 Technology Drive, Eden Prairie, Minnesota 55344. The meeting
will convene at 4:00 p.m. Central Standard Time for the following purposes:
1. To elect eight directors to hold office until the next Annual Meeting of
Shareholders or until their successors are elected and qualify.
2. To ratify and approve the MTS Systems Corporation 1997 Stock Option
Plan.
3. To ratify and approve the appointment of independent public accountants
for the Company for the current fiscal year.
4. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on November 29, 1996
as the record date for the determination of shareholders entitled to notice of
and to vote at the meeting.
For the Board of Directors,
/s/ Patrick Delaney
Patrick Delaney
Secretary
MTS Systems Corporation
14000 Technology Drive
Eden Prairie, Minnesota 55344
December 19, 1996
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE, AND RETURN
YOUR PROXY WHICH IS LOCATED ON THE OUTSIDE OF THIS ENVELOPE. A POSTAGE-PAID
ENVELOPE IS ENCLOSED FOR THIS PURPOSE. THE PROXY IS SOLICITED BY MANAGEMENT
AND MAY BE REVOKED OR WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS EXERCISED.
MTS SYSTEMS CORPORATION
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished to the shareholders of MTS Systems
Corporation (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company to be voted at the Annual Meeting of
Shareholders to be held on January 28, 1997 or any adjournment thereof.
The cost of this solicitation will be borne by the Company. In addition to
solicitation by mail, officers, directors and employees of the Company may
solicit proxies by telephone, facsimile or in person. The Company may also
request banks and brokers to solicit their customers who have a beneficial
interest in shares registered in the names of nominees and will reimburse such
banks and brokers for their reasonable out-of-pocket expenses. The Company's
principal offices are located at 14000 Technology Drive, Eden Prairie, Minnesota
55344, its telephone number is 612-937-4000 and its facsimile number is
612-937-4515. The mailing of this Proxy Statement to shareholders of the Company
commenced on or about December 19, 1996.
Any proxy may be revoked by request in person at the Annual Meeting or by
written notice mailed or delivered to the Secretary of the Company at any time
before it is voted. If not revoked, proxies will be voted as specified by the
shareholders. The shares represented by proxies that are signed but which lack
any such specification will be voted in favor of the proposals set forth in the
Notice of Annual meeting of Shareholders and in favor of the slate of directors
proposed by the Board of Directors and listed herein.
Under Minnesota law, each item of business properly presented at a meeting
of shareholders generally must be approved by the affirmative vote of the
holders of a majority of the voting power of the shares present, in person or by
proxy, and entitled to vote on that item of business. However, if the shares
present and entitled to vote on that item of business would not constitute a
quorum for the transaction of business at the meeting, then the item must be
approved by a majority of the voting power of the minimum number of shares that
would constitute such a quorum. Votes cast by proxy or in person at the Annual
Meeting of Shareholders will be tabulated to determine whether or not a quorum
is present. Abstentions will be treated as shares that are present and entitled
to vote for purposes of determining the presence of a quorum and in tabulating
votes cast on proposals presented to shareholders for a vote but as unvoted for
purposes of determining the approval of the matter on which the shareholder
abstains. Consequently, an abstention will have the same effect as a negative
vote. If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares will
not be considered as present and entitled to vote with respect to that matter.
OUTSTANDING SECURITIES AND VOTING RIGHTS
The Company has outstanding only one class of stock, $.25 par value common
stock (the "Common Stock"), of which 9,151,794 shares were issued and
outstanding on November 29, 1996. Each share is entitled to one vote on all
matters presented to shareholders.
Shareholders have cumulative voting rights in the election of directors. If
any shareholder gives written notice to any officer of the Company before the
meeting, or to the presiding officer at the meeting, that shareholder may
cumulate votes for the election of directors by multiplying the number of votes
to which the shareholder is entitled by the number of directors to be elected
and casting all such votes for one nominee or distributing them among any two or
more nominees.
Only shareholders of record at the close of business on November 29, 1996
will be entitled to vote at the meeting. The presence, in person or by proxy, of
the holders of a majority of the shares of Common Stock entitled to vote at the
Annual Meeting of Shareholders constitutes a quorum for the transaction of
business.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of November 29, 1996, the number and
percentage of outstanding shares of Common Stock of the Company beneficially
owned (i) by each person who is known to the Company to beneficially own more
than five percent (5%) of the Common Stock of the Company, (ii) by each director
of the Company, (iii) by each executive officer named in the Summary
Compensation Table below, and (iv) by all directors and executive officers of
the Company as a group:
NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ------------------------------------ ------------------ --------
Pioneering Management Corporation 867,000(1) 9.5%
60 State Street
Boston, MA 02114
State of Wisconsin Investment Board 644,400(2) 7.1%
c/o Keith Johnson, Acting General
Counsel
P. O. Box 7842
Madison, WI 53707
E. Thomas Binger 571,500(3) 6.2%
5575 Wayzata Boulevard
Minneapolis, MN 55412
Donald M. Sullivan 145,927(3)(4) 1.6%
Charles A. Brickman 114,000(3) 1.2%
Thomas E. Holloran 14,934(3) *
Thomas E. Stelson 18,000(3) *
Bobby I. Griffin 10,000(3) *
Linda Hall Whitman 2,000(3) *
Russell A. Gullotti 3,000(3) *
Keith D. Zell 59,770(3)(5) *
Marshall L. Carpenter 81,641(3)(6) *
Mauro G. Togneri 14,667(3)(7) *
William G. Beduhn 35,449(3)(8) *
All Directors and executive officers as a 1,152,424(3)(9) 12.3%
group (15 persons)
- ------------------------------
*Less than 1%
(1) Based upon information provided to the Company by Pioneering Management
Corporation. Consists of sole voting power and 370,000 shares over which
sole dispositive power is exercised and 497,000 shares over which shared
dispositive power is exercised.
(2) Based upon information included in a Schedule 13D and Form 13F filed with
the Securities and Exchange Commission. Consists of sole voting and
dispositive power.
(3) Includes the following number of shares which could be purchased under stock
options exercisable within sixty (60) days of the date hereof: Mr. Binger,
8,000 shares; Mr. Sullivan, 74,402 shares; Mr. Brickman, 8,000 shares; Mr.
Holloran, 8,000 shares; Mr. Stelson, 6,000 shares; Mr. Griffin, 6,000
shares; Ms. Whitman, 2,000 shares; Mr. Gullotti, 2,000 shares; Mr. Zell,
26,789 shares; Mr. Carpenter, 22,667 shares; Mr. Togneri, 6,667 shares; Mr.
Beduhn, 10,701 shares; and by all directors and executive officers as a
group, 220,676 shares.
(4) Includes 12,700 shares owned jointly with his spouse. The voting and
investment discretion over those shares are shared accordingly.
(5) Includes 15,824 shares held in a trust for the benefit of Mr. Zell's
children for which Mr. Zell is trustee.
(6) Includes 58,974 shares owned jointly with his spouse. The voting and
investment discretion over those shares are shared accordingly.
(7) Includes 8,000 shares owned jointly with his spouse. The voting and
investment discretion over those shares are shared accordingly.
(8) Includes 23,428 shares held by his spouse and the beneficial ownership of
such shares is disclaimed.
(9) Includes 119,008 shares owned jointly with a spouse, 32,641 shares owned
directly by a spouse and 2,468 shares which are owned directly by children.
ELECTION OF DIRECTORS
(PROPOSAL #1)
Eight directors will be elected at the Annual Meeting, each to serve until
the next Annual Meeting of Shareholders or until a successor is elected and
qualified. The Board of Directors has nominated for election the eight persons
named below and each has consented to being named a nominee. It is intended that
proxies will be voted for such nominees. Each of the nominees was elected at the
Annual Meeting of Shareholders on January 30, 1995. The Board of Directors
believes that each nominee named herein will be able to serve, but should any
nominee be unable to serve as a director, the persons named in the proxies have
advised that they will vote for the election of such substitute nominee as the
Board of Directors may propose. The proxies cannot be voted for a greater number
of persons than eight.
The names of the nominees, their principal occupations for at least the past
five years and other information is set forth below:
[PHOTO] President of Pinnacle Capital Corporation
(a venture capital company) since 1990;
with Kidder Peabody & Co., Inc., an
CHARLES A. BRICKMAN Age 64 investment banking firm, from 1960 to 1990
DIRECTOR SINCE 1968 (Vice President from 1964 to 1990 and a
director from 1975 to 1990); a director of
Illinois Consolidated Telephone Co. and a
number of small, privately held companies.
[PHOTO] Professor, Graduate School of Business,
University of St. Thomas, St. Paul,
Minnesota since 1985; Chairman,
THOMAS E. HOLLORAN Age 67 Minneapolis-St. Paul Metropolitan Airports
DIRECTOR SINCE 1971 Commission from 1989 to 1991; Chairman of
the Board of Directors and Chief Executive
Officer of the Inter-Regional Financial
Group, Inc. (holding company for various
financial enterprises) from 1976 to 1985;
a director of Flexsteel Industries, Inc.,
Medtronic, Inc., ADC Telecom munications
Inc., National City Bank of Minneapolis,
National City Bancorporation and Space
Center Company; Chairman and a director
of Malt-o-Meal Company and the Bush
Foundation; a director of the Minnesota
Center for Corporation Responsibility.
[PHOTO] General Partner of Pittsburgh Pacific
Company, Ltd., an iron ore mining company
and personal investment company, from 1970
E. THOMAS BINGER Age 73 to 1994; a director of Bemis Com pany,
DIRECTOR SINCE 1975 Inc. from 1970 to 1994 and Investors
Savings Bank from 1991 to 1995.
[PHOTO] Consulting Engineer, Executive Vice
President and Professor of Civil
Engineering Emeritus, Georgia Institute of
THOMAS E. STELSON Age 68 Technology, Atlanta, Georgia since 1994;
DIRECTOR SINCE 1979 Vice President and President-Elect, Center
for Rehabilitation Technology, Inc.; Pro
Vice Chancellor for Research and
Development, Hong Kong University of
Science and Technology from 1991 to 1994;
previously Professor and Vice President,
Georgia Institute of Technology.
[PHOTO] Chairman of the Board of the Company since
May 1994; Chief Executive Officer of the
Company since 1987; President of the
DONALD M. SULLIVAN Age 61 Company since 1982; Executive Vice
DIRECTOR SINCE 1982 President of the Company from 1980 to
1982; Vice President of the Company from
1976 to 1980; employed by (Emerson)
Rosemount, Inc. from 1965 to 1976 (most
recently Senior Vice President of
Industrial Instrument and International
Business); a director of ADC Telecom
munications, Inc. and TSI, Inc.; member of
Northwestern University's Materials
Science Department Advisory Committee;
formerly a director of Minnesota High
Technology Council.
[PHOTO] President of Medtronic Pacing Business
(manufacturer of pacing arrhythmia
products and the largest business unit
BOBBY I. GRIFFIN Age 59 within Medtronic, Inc.) since 1991;
DIRECTOR SINCE 1993 Executive Vice President of Medtronic,
Inc. (medical technology com pany) since
1988; held various management positions in
the pacing business since joining
Medtronic in 1973; involved in bio-medical
research and development since 1961 with
General Electric-Hanford Laboratories,
Batelle Memorial Institutes, and with
McDonnell-Douglas Corporation-Donald W.
Douglas Laboratories; a director of The
Lutheran Brotherhood Board and Tentmakers
Youth Ministry; member of the Concordia
College Board of Trustees and the North
American Association for Pacing and
Electrophysiology.
[PHOTO] President and Chief Executive Officer of
Ceridian People Partners, Ceridian
Corporation since May, 1996; management
LINDA HALL WHITMAN Age 48 and executive positions with Honeywell,
DIRECTOR SINCE MARCH 1995 Inc. from 1980 to 1996 (Vice President,
Business Integration from October 1995 to
May 1996; Vice President, Consumer
Business Group from 1993 to 1995);
consultant, psychologist, social worker
and special education teacher in Minnesota
and Michigan schools from 1969 to 1980;
Minnesota 100 mentor since 1994; Member,
Minnesota Women's Economic Roundtable; a
director of Minnesota Zoo; former director
of CAPITOL AIR, Inc. from 1994 to 1995 and
Home Energy Systems Rating Council from
1993 to 1995.
[PHOTO] Chairman of the Board of Directors of
National Computer Systems, Inc. (NCS)
(provider of data collection systems and
RUSSELL A. GULLOTTI Age 54 services) since May, 1995; President and
DIRECTOR SINCE MAY 1995 Chief Executive Officer since October,
1994; management and executive positions
with Digital Equipment Corporation from
1977 to 1994 (President Sales/Service for
Americas from 1992 to 1994 and Vice
President Digital Services from 1988 to
1992); a director of GenRad, Inc. and the
Minnesota Business Partnership.
OTHER INFORMATION REGARDING THE BOARD
MEETINGS. The Board of Directors met four times during fiscal year 1996,
which ended September 30, 1996. None of the directors attended fewer than 75% of
the aggregate of the total number of Board meetings and Committee meetings on
which he or she served during fiscal year ended 1996. The Board of Directors
also took action in writing in lieu of a meeting two times during fiscal 1996,
which all of the directors signed.
BOARD COMMITTEES. The Audit Committee of the Board of Directors, which at
September 30, 1996 was composed of Messrs. Brickman (chair), Binger and Stelson,
met three times during fiscal year 1996. Among other duties, the Audit Committee
reviews and evaluates significant matters relating to the audit and internal
controls of the Company, reviews and approves the Code of Conduct and
management's processes to ensure compliance with the Code of Conduct and other
laws and regulations, reviews the scope and results of the audits by, and the
recommendations of, the Company's independent auditors and approves services
provided by the auditors. The Audit Committee also reviews the audited financial
statements of the Company.
The Human Resources Committee of the Board of Directors, which at September
30, 1995 was composed of Messrs. Binger and Holloran and Ms. Whitman, met two
times and took five actions in writing during fiscal year 1996. The Human
Resources Committee makes recommendations to the Board of Directors regarding
the employment practices and policies of the Company and the compensation paid
to Company officers and administers the Company's stock option plans.
During 1996, the Board formed a Governance Committee, which at September 30,
1996, was composed of Messrs. Gullotti (chair), Griffin and Binger and Ms.
Whitman. The Governance Committee held its first meeting in October. The charter
of the Committee includes Board evaluation, Board membership recommendations and
chief executive officer succession planning.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending September 30, 1996,
1995, and 1994, the cash compensation paid by the Company, as well as certain
other compensation paid or accrued for those years, to Donald M. Sullivan, the
Company's Chairman, Chief Executive Officer and President, and each of the four
other most highly compensated executive officers of the Company as determined in
accordance with the Securities and Exchange Commission rules (together with Mr.
Sullivan, the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) (#) ($)(2)
- --------------------------- ---- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
D. M. Sullivan 1996 $241,154(3) $109,694 18,000 $10,052
Chairman, Chief Executive 1995 226,978(3) 58,584 18,000 10,076
Officer and President 1994 218,494 33,755 18,000 17,111
Keith D. Zell 1996 162,479 25,089 12,000 10,052
Executive Vice President 1995 155,747 27,225 12,000 10,076
1994 150,104 7,468 12,000 11,449
M. L. Carpenter 1996 158,604 81,281 8,000 10,052
Vice President and Chief 1995 152,701 31,618 6,000 10,076
Financial Officer 1994 146,779 11,942 6,000 11,927
M. G. Togneri 1996 154,558(4) 74,355 8,000 10,052
Vice President 1995 145,580(4) 94,744 6,000 10,076
1994 144,376 93,840 -0- 9,746
William G. Beduhn 1996 136,871 86,278 5,400 10,052
Vice President 1995 130,773 52,710 4,500 10,076
1994 123,926 55,951 4,500 11,388
</TABLE>
- --------------------------
*All shares restated to reflect a two-for-one stock split effective April 1,
1996.
(1) Represents earnings under the Management Variable Compensation Plan. The
amounts listed were earned in the fiscal year shown and were paid or will be
paid in the following year, unless deferred by the Named Executive.
(2) Represents contributions by the Company to the Company's Profit Sharing
Retirement Plan and the Company's 401(k) Plan on behalf of the Named
Executives.
(3) Includes $12,470 and $11,381 of compensation earned in fiscal years 1996 and
1995, respectively, and deferred by the Named Executive to a later date.
(4) Includes $3,032 and $6,004 of compensation earned in the fiscal years 1996
and 1995, respectively, and deferred by the Named Executive to a later date.
STOCK OPTIONS
The following table contains information concerning grants of stock options
under the Company's Stock Option Plans to the Named Executives during the fiscal
year ending September 30, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE
SECURITIES % OF TOTAL VALUE AT ASSUMED
UNDERLYING OPTIONS ANNUAL RATE OF STOCK PRICE
OPTIONS GRANTED EXERCISE APPRECIATION FOR OPTION TERM
GRANTED TO EMPLOYEES PRICE* EXPIRATION ----------------------------
NAME (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ---------- -------------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
D. M. Sullivan 18,000(1) 5.6% $16.25 01/30/03 $119,077 $277,500
K. D. Zell 12,000(1) 3.7% 16.25 01/30/03 79,385 185,000
M. L. Carpenter 8,000(1) 2.5% 16.25 01/30/03 52,923 123,333
M. G. Togneri 8,000(1) 2.5% 16.25 01/30/03 52,923 123,333
W. G. Beduhn 5,400(1) 1.7% 16.25 01/30/03 35,723 83,250
</TABLE>
*All share data restated to reflect a two-for-one stock split effective April
1, 1996.
(1) Each option becomes exercisable in equal installments over a period of three
years, commencing one year after the date of grant.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during fiscal year ending
September 30, 1996 and unexercised options held as of September 30, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)(1)
ACQUIRED ON VALUE ---------------------------- -----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. M. Sullivan 16,000 $136,500 56,402 35,998 $377,637 $184,488
K. D. Zell 16,413 146,490 14,788 23,999 85,009 122,992
M. L. Carpenter 2,400 20,100 16,000 14,000 105,875 87,435
M. G. Togneri 20,000 133,750 2,000 12,000 16,375 60,750
W. G. Beduhn 7,800 52,462 5,901 9,899 34,585 49,271
</TABLE>
- ------------------------
(1) Based on closing price of $19.75 per share of the Company's Common Stock on
September 30, 1996.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This is the report of the Company's Human Resources Committee, which is
composed of the undersigned Board members. Messrs. Holloran and Binger and Ms.
Whitman have been non-employee directors of the Company since the close of 1995.
This report shall not be deemed incorporated by reference into any filing under
the Securities Exchange Act of 1933 or the Securities Exchange Act of 1934.
The Human Resources Committee is responsible for executive compensation, the
Management Variable Compensation and Stock Option Plans, and certain other
employee benefit plans. The compensation philosophy of the Company is to be
competitive with comparable and directly competitive companies to attract and
motivate highly qualified employees.
The Company uses various compensation surveys -- international, national and
local -- to develop its compensation strategy and plans; this practice is also
used by the Human Resources Committee for executive compensation. In general,
the Committee does not use outside consultants to prepare specific studies for
it unless it judges the available survey data to be incomplete or
unrepresentative.
There are four components to the Company's executive compensation program:
(1) base salary; (2) management variable compensation (referred to in the
Summary Compensation Table above as "Bonus"); (3) stock options; and (4) profit
sharing/retirement. The Committee may adjust the mix of these components from
year to year according to survey data. In general, as is true for all the
Company's compensation programs, salaries and retirement compensation are
somewhat lower than average survey data, and bonus and stock options (i.e.,
potential annual and longer term variable compensation) may be somewhat higher.
This proportionality increases as responsibility and compensation increase.
BASE SALARY. Executive base salary is adjusted annually in January based on
the prior fiscal year's financial results and performance on developmental
objectives the Committee believes are critical to the Company's long-term
progress. These objectives include, but are not limited to, progress on the
Company's current Business Plan's objectives and staff development.
MANAGEMENT VARIABLE COMPENSATION. The Human Resources Committee annually
approves the Management Variable Compensation Plan, which includes executives,
managers, and key functional and technical leaders. It also recommends to the
full Board the corporate earnings and growth objectives upon which the Chief
Executive Officer's variable compensation is principally based. These objectives
are a mix of return on beginning equity per share, return on average net assets
and revenue growth.
Variable compensation is paid to each recipient by December 30 following the
close of the fiscal year unless the executive elects to defer a portion in the
Company's non-qualified, non-secured compensation deferral plan.
STOCK OPTIONS. The Company's current Stock Option Plans include executives,
managers, and key functional and technical leaders. Stock options are priced and
granted annually on the date of the January Board of Directors' meeting. In
addition, Company officers from time to time recommend to the Human Resources
Committee for its approval at regular Board of Directors' meetings stock option
grants to employees who have shown exceptional service. For 1996, these
discretionary stock options did not exceed 10% of the number of shares that were
granted at the January Board meeting and were priced as of the date of approval.
Options outstanding under current plans fully vest in three or four years and
expire in five to seven years.
PROFIT SHARING/RETIREMENT. The Company sponsors an all employee Profit
Sharing/Retirement Plan for U.S. employees, except certain subsidiary employees
who are covered by subsidiary plans. All of the executives listed in the above
tables are included in this Profit Sharing Plan. The full Board annually
approves the contribution formula for all employees, including executives.
The Company also has a 401(k) Plan for U.S. employees, including executives,
under which the Company partially matches employee contributions at a proportion
set by the Company. The Human Resources Committee annually approves the
corporate matching formula for all employees.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Sullivan's compensation for
1994-1996 is shown in the Summary Compensation Table above. The Human Resources
Committee believes Mr. Sullivan has managed the Company well in a highly
competitive industry. Mr. Sullivan's compensation is consistent with this
evaluation and with the Company's overall management compensation strategy.
BOARD ACTION. The full Board of Directors approves new stock option plans
for submittal for shareholder vote and approves the annual corporate earnings
and growth objectives for inclusion into the Management Variable Compensation
Plan. The full Board reviews all components of executive compensation and the
Profit Sharing/Retirement Plan every two to three years.
SUBMITTED BY THE HUMAN RESOURCES COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS:
Thomas E. Holloran, Chairman
E. Thomas Binger
Linda Hall Whitman
SHAREHOLDER RETURN PERFORMANCE
The graph below sets forth a comparison of the cumulative shareholder return
of the Company's Common Stock over the last five fiscal years with the
cumulative total return over the same periods for the Nasdaq Market Index and
the Laboratory Apparatus and Analytical, Optical, Measuring, and Controlling
Instruments Index (the "Analytical Instruments Index") (SIC Code 382, which
includes 157 companies). The graph below compares the cumulative total return of
the Company's Common Stock over the last five fiscal years assuming a $100
investment on September 30, 1991 and assuming reinvestment of all dividends.
[PLOT POINT'S GRAPH]
<TABLE>
<CAPTION>
FISCAL YEAR ENDING SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
MTS SYSTEMS CORPORATION $100.00 $129.7 $147.5 $121.7 $144.9 $205.8
ANALYTICAL INSTRUMENTS INDEX 100.00 105.8 128.2 133.3 210.6 219.5
NASDAQ MARKET INDEX 100.00 112.1 146.8 148.0 204.4 242.6
</TABLE>
The Company's Common Stock closed at $19.75 per share on September 30, 1996.
EMPLOYMENT AGREEMENTS
Messrs. Sullivan, Zell, Carpenter, Togneri and Beduhn, individually, have
agreements with the Company under which, upon the termination of their
employment with the Company other than for cause, such officers will receive
monthly payments over periods ranging from 12 to 18 months or until age 65,
whichever occurs first, based upon their highest annual salaries and the average
management variable compensation and benefits they received during the previous
three years. As of the date hereof, the maximum aggregate amounts of such
payments to each of Messrs. Sullivan, Zell, Carpenter, Togneri and Beduhn are
$483,754, $193,619, $320,198, $488,741 and $213,696, respectively. As a
condition to such payments, the officer must agree to not render services to any
competing entity concerning any similar or competing product for periods ranging
from nine to twelve months.
DIRECTOR COMPENSATION
Directors who served during all of 1996 and were not otherwise directly or
indirectly compensated by the Company (Messrs. Binger, Brickman, Holloran,
Griffin, Stelson, Gullotti and Ms. Whitman) were each paid directors' fees in
the form of an annual retainer of $15,800 during 1996. The payment of annual
retainers is not dependent upon board meeting attendance. In addition,
non-employee directors who attended over a total of five board or committee
meetings not held on the same day as a regular board meeting were compensated at
the rate of $750 per half day meeting and $1,500 per full day meeting. Messrs.
Binger, Holloran and Ms. Whitman each attended two committee meetings on
different days than the board meetings and each received $1,500.
Each of the non-employee directors who were elected at last year's Annual
Meeting of Shareholders (Messrs. Binger, Brickman, Holloran, Griffin, Stelson,
Gullotti and Dr. Whitman) were automatically granted options to purchase 2,000
shares each of Common Stock upon their re-election to the Board of Directors at
the Company's Annual Meeting of Shareholders for fiscal year 1996, and will each
be granted an option to purchase 2,000 shares of Common Stock upon their
re-election to the Board of Directors at the Company's Annual Meeting of
Shareholders to be held on January 28, 1997 at the fair market value on such
date. Mr. Brickman and Mr. Stelson were also reimbursed for travel expenses to
Board of Directors' meetings in Minneapolis, and all directors were reimbursed
for travel expenses to a Board of Directors' meeting in Cary, North Carolina.
PROPOSAL TO APPROVE THE COMPANY'S
1997 STOCK OPTION PLAN
(PROPOSAL #2)
INTRODUCTION
On November 22, 1996, the Company's Board of Directors adopted the MTS
Systems Corporation 1997 Stock Option Plan (the "1997 Plan"), subject to
ratification and approval of the 1997 Plan by the shareholders. The purpose the
1997 Plan is to enable the Company and its subsidiaries to retain and attract
executives, managers, key technical and functional employees, directors and
consultants who contribute to the Company's success by their ability, ingenuity
and industry, and to enable such individuals to participate in the long-term
success and growth of the Company by giving them a proprietary interest in the
Company. The 1997 Plan authorizes the granting of awards in the form of stock
options.
SUMMARY OF THE PLAN
NUMBER OF SHARES. The maximum number of shares of common stock reserved and
available under the 1997 Plan for awards is 750,000 shares (subject to
adjustment in the event of possible future stock splits or similar changes in
the common stock). Shares of common stock covered by expired or terminated stock
options may be used for subsequent awards under the 1997 Plan.
ELIGIBILITY AND ADMINISTRATION. Executives, managers, key technical and
functional employees of the Company and its subsidiaries and non-employee
directors and consultants are eligible to be granted stock options under the
1997 Plan. Approximately 347 officers, consultants and other key employees and
seven non-employee directors are currently eligible to participate in the 1997
Plan. The 1997 Plan is administered by the Board of Directors or by a Committee
appointed by the Board, consisting of at least two directors, all of whom are
"Outside Directors" and "Non-Employee Directors" as defined in the 1997 Plan.
The Committee has the power to make awards, determine the number of shares
covered by each award and other terms and conditions of such awards, construe
the 1997 Plan, and prescribe, amend and rescind the rules and regulations with
respect to the administration of the 1997 Plan.
STOCK OPTIONS. The Committee may grant stock options that qualify as
"incentive stock options" under the Internal Revenue Code or as "non-qualified
stock options" in such form and upon such terms as the Committee may approve
from time to time. Stock options granted under the 1997 Plan may be exercised
during their respective terms as determined by the Committee. The purchase price
may be paid by tendering a certified or bank check, or by any other form of
legal consideration deemed sufficient by the Committee and consistent with the
1997 Plan's purpose and applicable law, including promissory notes and
unrestricted stock already owned by the optionee. If the terms of a stock option
so permit, an optionee may elect to pay all or part of the exercise price by
having the Company withhold from the shares of stock that would otherwise be
issued upon exercise, that number of shares of stock having a fair market value
equal to the aggregate exercise price for the shares with respect to which such
election is made. No stock option shall be transferable by the optionee or
exercised by anyone else during the optionee's lifetime; except the Committee
may, in its discretion, authorize all or a portion of the options to be granted
on terms which permit the transfer of such options by the optionee to immediate
family members, a trust established for the exclusive benefit of immediate
family members or a partnership in which such immediate family members are the
only partners provided, among other things, that there is no consideration for
any such transfer.
Stock options may be exercised during varying periods of time after an
optionee's termination of employment by the Company and any subsidiary or parent
corporation, dependent upon the reason for the termination. Following an
optionee's death or disability, the optionee's stock options may be exercised,
to the extent exercisable at such time (or on such accelerated basis as the
Committee shall determine at or after grant), for a period of three years from
the date of death or disability or until the expiration of the stated term of
the option, whichever is less. If the optionee's employment terminates by reason
of retirement after age 55, the optionee's stock options may be exercised in
full for a period of three years from the date of retirement or until the
expiration of the stated term of the option, whichever is less. If the
optionee's employment terminates for any reason other than the optionee's death,
disability or retirement, any stock option may be immediately exercised to the
extent it was exercisable at the time of such termination, but may not be
exercised after ninety days after such termination, or the expiration of the
stated term of the option, whichever period is shorter. If the optionee's
employment is terminated for Cause, as defined in the 1997 Plan, all unexercised
stock options granted to the optionee shall immediately terminate.
No incentive stock options shall be granted under the 1997 Plan after
November 22, 2006. The term of an incentive stock option may not exceed seven
years (or five years if issued to an optionee who owns or is deemed to own more
than 10% of the combined voting power of all classes of stock of the Company,
any subsidiary or parent corporation). The aggregate fair market value at the
time of grant of the common stock with respect to which an incentive stock
option is exercisable for the first time by an optionee during any calendar year
shall not exceed $100,000. The exercise price under an incentive stock option
granted under the 1997 Plan many not be less than the fair market value of
common stock on the date the option is granted (or, in the event the participant
owns more than 10% of the combined voting power of all classes of stock of the
Company or any subsidiary or parent corporation, the option price shall not be
less than 110% of the fair market value of the stock on the date the option is
granted).
The 1997 Plan provides for the annual, automatic granting of up to a maximum
number of options to non-employee directors. Such options are granted to each
person who (i) not an employee of the Company, any subsidiary or parent
corporation and (ii) is elected or re-elected as a director by the Board or the
shareholders at any annual or special meeting. Each such person shall, as of the
date of such election or re-election, automatically receive a non-qualified
option to purchase up to a maximum of 3,000 shares of common stock (the actual
number to be determined by the Committee upon such election or re-election) with
the option price equal to the fair market value of the Company's common stock on
such date. The term of such options shall be four years after the date of grant.
The options shall become exercisable as to all or any part of the shares subject
to the options beginning six months after the date granted. All provisions of
the 1997 Plan not inconsistent with the foregoing shall apply to the options
granted non-employee directors. The maximum number of shares as to which options
may be granted to all non-employee directors shall be 90,000 shares.
RIGHT OF REPURCHASE. The Committee may, at the time of any grant under the
Plan, provide that the shares of common stock received under the Plan shall be
subject to a repurchase right in favor of the Company in the event of optionee's
termination of employment. Except as otherwise provided by the Committee, the
repurchase price will be the fair market value of the stock, or in the case of a
termination for cause, the amount equal to the consideration paid for the stock.
The Committee may also, at the time of grant, provide the Company with similar
repurchase rights, or require the forfeiture of, shares of stock acquired under
the 1997 Plan by any optionee who, at any time within two years after
termination of employment with the Company or any subsidiary or parent
corporation, directly or indirectly competes with, or is employed by, a
competitor of the Company or any subsidiary or parent corporation.
FEDERAL INCOME TAX CONSEQUENCES
An optionee will not realize taxable compensation income upon the grant of
an incentive stock option. In addition, an optionee generally will not realize
taxable compensation income upon the exercise of an incentive stock option if he
or she exercises it as an employee or within three months after termination of
employment (or within one year after termination if the termination results from
a permanent and total disability). At the time of exercise, the amount by which
the fair market value of the shares purchased exceeds the aggregate option price
shall be treated as alternative minimum taxable income for purposes of the
alternative minimum tax. If the stock acquired pursuant to an incentive stock
option is not disposed of prior to the date two years from the option grant date
or prior to one year from the option exercise date, any gain or loss realized
upon the sale of such shares will be characterized as a capital gain or loss. If
the applicable holding periods are not satisfied, then any gain realized in
connection with the disposition of such stock will generally be taxable as
compensation income in the year in which the disposition occurred, to the extent
of the difference between the fair market value of such stock on the date of
exercise and the option exercise price. The Company is entitled to a tax
deduction to the extent, and at the time, that the participant realizes
compensation income. The balance of any gain will be characterized as a
long-term or short-term capital gain depending on whether the shares were held
for more than one year.
An optionee will not realize taxable compensation income upon the grant of a
non-qualified stock option. When an optionee exercises a non-qualified stock
option, he or she will realize taxable compensation income at the time of
exercise equal to the amount by which the fair market value of the shares
purchased exceeds the aggregate option price. The Company is entitled to a tax
deduction to the extent, and at the time, that the participant realizes
compensation income.
The 1997 Plan requires each participant, no later than the date of which any
part of the value of an award first becomes includible as compensation in the
gross income of the participant, to pay the Company any federal, state or local
taxes required by law to be withheld with respect to the award. The Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the participant. With respect to any award
under the 1997 Plan, if the terms of the award so permit, a participant may
elect to satisfy part or all of the withholding tax requirements associated with
the award by (i) authorizing the Company to retain from the number of shares of
stock which would otherwise be deliverable to the participant, or (ii)
delivering to the Company from shares of the Company common stock already owned
by the participant that number of shares having an aggregate fair market value
equal to part or all of the tax payable by the optionee. In such event, the
Company would pay the tax liability from its own funds.
REGISTRATION WITH THE SEC
The Company intends to file a Registration Statement covering the 1997 Plan
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended.
VOTE REQUIRED
Shareholder approval of the 1997 Plan requires the affirmative vote of the
holders of a majority of the shares of common stock represented at the meeting
and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
THE 1997 STOCK OPTION PLAN
APPROVAL OF AUDITORS
(PROPOSAL #3)
Arthur Andersen LLP, independent certified public accountants, have been the
auditors for the Company since 1966. They have been reappointed by the Board of
Directors, on recommendation of its Audit Committee, as the Company's auditors
for the current fiscal year and shareholder approval of the appointment is
requested. In the event the appointment of Arthur Andersen & Co. should not be
approved by the shareholders, the Board of Directors will make another
appointment to be effective at the earliest feasible time.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting of Shareholders, will have an opportunity to make a statement if
he or she desires to do so, and will be available to respond appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL
TO APPROVE THE APPOINTMENT OF ARTHUR ANDERSEN LLP
SHAREHOLDER PROPOSALS
In order for a shareholder proposal to be considered for inclusion in the
Proxy Statement for the January 1998 Annual Meeting of Shareholders, the
proposal must be received by the Secretary of the Company in writing no later
than August 21, 1997.
GENERAL
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission and
the NASD. Executive officers and directors are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of such forms furnished to the Company and
written representations from the Company's executive officers and directors, the
Company notes that except as set forth below all such reports have been filed in
a timely manner. Werner Ongyert failed to file in a timely manner one report
that reported seven transactions, and Russell A. Gullotti failed to file in a
timely manner one report that reported one transaction.
OTHER MATTERS
The management of the Company knows of no matters other than the foregoing
to be brought before the meeting. However, the enclosed proxy gives
discretionary authority in the event that any additional matters should be
presented.
The Annual Report of the Company for the fiscal year ended September 30,
1996 is enclosed herewith.
PROXY
MTS SYSTEMS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS - JANUARY 28, 1997
The undersigned hereby appoints Donald M. Sullivan and Patrick Delaney (the
"Proxies"), each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of common
stock of MTS Systems Corporation, held of record by the undersigned on November
29, 1996, at the ANNUAL MEETING OF SHAREHOLDERS to be held on January 28, 1997,
or any adjournment thereof.
(1) ELECTION OF DIRECTORS:
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
(except as marked below) to vote for nominees listed
E. THOMAS BINGER, CHARLES A. BRICKMAN, BOBBY I. GRIFFIN,
THOMAS E. HOLLORAN, RUSSELL A. GULLOTTI
THOMAS E. STELSON, DONALD M. SULLIVAN, LINDA HALL WHITMAN
(INSTRUCTION: To withhold authority to vote for any individual nominee write
that nominee's name on the space provided below.)
(2) The proposal to ratify and approve the Company's 1997 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) The proposal to ratify and approve the appointment of Arthur Andersen LLP
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(continued, and to be completed and signed on the reverse side)
(continued from the other side)
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL
BE VOTED IN FAVOR OF THE PROPOSALS.
Dated:__________________________________
Signed:_________________________________
Signature of Shareholder
Signed:_________________________________
Signature of Shareholder
Please vote, date and sign this proxy
statement as your name is printed hereon.
When signing as attorney, executory
administrator, trustee, guardian, etc.
give full title as such. If the stock is
held jointly, each owner should sign. If
a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
